The central bank said that recent developments, such as the wave of en bloc deals, could bring about potential risks. What is the MAS worried about? What does that mean for the property cooling measures in place? We ask the experts.

Former HUDC estate Rio Casa was sold for S$575 million on May 25, 2017. (Photo: Knight Frank Singapore)

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SINGAPORE: The recent wave of collective sales and an increase in land prices prompted the Monetary Authority of Singapore (MAS) to sound a note of caution on the local property market on Thursday (Nov 30).

In its latest annual review of financial stability, the central bank said that these recent developments could bring about risks to the “sustainable conditions” in the market.

Industry observers said the warning from MAS follows a similar call for prudence from National Development Minister Lawrence Wong earlier this month.

It also comes on the back of new rule changes, such as the requirement of a traffic impact study for en bloc redevelopments announced on Nov 13 – a sign that some analysts interpreted as authorities beginning to cast a watchful eye on the collective-sale fever.

Q: WHAT ARE THE MAIN CONCERNS?

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MAS’ concerns stem from the significant ramp-up in private housing supply, with the development of en bloc and Government Land Sales (GLS) sites expected to more than double the number of unsold units in the pipeline within the next one to two years.

This could result in “a supply imbalance” if there is insufficient occupation demand over the medium term due to slower population growth.

Ms Christine Li, research director at Cushman & Wakefield, noted that several en bloc sales launched since last year involve huge sites, in particular privatised Housing and Urban Development Company (HUDC) estates where the number of units in the new projects may be three or four times that of the existing units.

While the market is nowhere near oversupply for now, this “spike” in the number of new homes at each site may pave the way for a supply glut further down the road, Ms Li added.

If that happens, and with the new projects likely to be launched around the same time, developers may roll out price cuts to offload unsold units before the additional buyers’ stamp duty (ABSD) hits, said Knight Frank’s executive director and head of investment and capital markets Ian Loh.

Unless developers build and sell all their units within five years of being awarded the site, they are required to pay an ABSD of 10 or 15 per cent, including interest, on the land cost of a project.

“This could cause prices to correct,” reckoned Mr Loh.

Meanwhile, in the nearer term, authorities may have concerns that the substantial premiums paid by land-starved developers for residential sites will translate into higher prices for new projects in future, Ms Li said.

Therefore, before these come to pass, authorities will want to “pre-empt the property market from becoming overly exuberant”, she added.

Q: WHAT IS THE KEY MESSAGE TO MARKET PLAYERS?

With expectations that the collective-sale fever will heat up further, industry experts said the MAS is sending out the message of prudence to market players.

“It is not strictly a warning,” said ERA Realty's key executive officer Eugene Lim. “Investors will naturally prefer to sell en bloc, as prices are usually be higher than if the units are individually sold… MAS is trying to urge prudence in the face of market exuberance and to not bite off more than you can chew.”

Given the rising optimism in the property market following the recent spate of successful en bloc deals, more home owners are looking to jump on the bandwagon with rising expectations.

“But there’s a limit as to how much prices can go. Such reminders from the MAS or comments from the ministers can serve as a reminder for owners to be more measured in what they ask from the developers,” Mr Loh from Knight Frank said.

Q: WHAT DOES THAT MEAN FOR COOLING MEASURES?

Most of the analysts that Channel NewsAsia spoke to reckoned that it is unlikely that the current set of property market measures will be tweaked in the near term.

“Given that sales volume has rebounded and prices are firming even with the measures in place, the Government is unlikely to deem it timely to lift the measures in the near term,” said Ms Yong Choon Fah, national director of capital markets at JLL in Singapore.

Besides, there have been adjustments to the seller’s stamp duties and total debt servicing ratio framework in March this year.

“Considering the compulsory traffic study last month, they might from time to time tweak the rules for developers so as to prevent them from squeezing more units into the re-developed sites,” she told Channel NewsAsia.

“But for the end-users, I don’t think the government will do anything drastic because the cooling measures have worked well and will continue to ensure that buyers are not overstretching themselves in terms of finances.”

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